The real culprit in our financial Crisis

Is you. The consumer. Stop blaming the banks and financial derivatives companies. You did this to yourself... and it started back in the 1980's. Recently I had an exchange with a poster on the Oregon live comment section where I said that any "stimulus" finds that came my way were now nothing more than more money for me to put into savings. I was told I was destroying America.

This may be true to someone who has no known any other way. After all, there are 26 year old men and women who never experienced stagflation in the late 70's-early 80's. They don't know anything but an America where credit cards are given to high school kids to finance their "cool" style, concert tickets, cd's, stereos, tv's, dates and whatever else they want. They have seen mom and dad splurge for anything and everything they could possibly want. Buying houses bigger than they need, cars and trucks bigger than they need and every new gadget under the sun as soon as it is available. There are hundreds of thousands of kids with MULTIPLE video game systems.

Where did they get all of these consumer goods? Certainly not with their allowances or lawn mowing money. No, they bought everything on credit. Credit is all they know. Check out the savings rate at your bank and you might get why people went away from saving their money for these products; it doesn't pay. My bank is offering a whopping 0.2% APY. Why the heck would I ever put my money there?

Instead, we were encouraged to put our wealth into variable assets like mutual funds and 401k's because there was better wealth potential there. But why, oh why, did the government and banks care where we put our savings? Well, simply put, bankers and financiers were not getting wealthy by money sitting in savings accounts. Goods and services were moving slowly. Reagan wanted to change that... so he used supply side economics to attempt to stabilize inflation and stagnation. It worked in most peoples eyes... bot as swiftly as some would have liked, but after about 7 years, the economy started gaining steam. All seemed fairly good... until 2001.

After a short recession, America started to pick up steam. The Internet bust didn't seem to stop the economic growth. But there was a catch... the economy was growing with a BIG consequence: everything that was being produced was being purchased with credit. Bigger houses; bigger cars came with bigger price tags. Our inflation adjusted income had not risen since the late 60's, yet more of our overall income was going towards debt bearing products like mortgage, autos and electronics. No longer was America producing tangible goods people could afford, they were producing financial products afforded only through credit.

Last fall, we had a National Margin Call. that's right... the Nation received a margin call... and we couldn't cover our debts.

My personal Solution? Simple. Stop. When I was younger (I am 43 now), we didn't go buy a new car every three years. We drove our car until it couldn't go another inch and saved for a new one. We were a nation that understood a very important concept... most of what we buy is utilitarian in nature. Cars are a mode of transportation. We need them to get to work and get us to our other important appointments. It doesn't have to be pretty to get the job done.

When we buy a $20,000 car and pay a mere 6% interest, over a 5 year loan you pay $3200 in interest. So the REAL cost of that car is $23,200, but it was NEVER WORTH THAT amount. Instead, save that $390/month for the 5 years and you will have 23,400 PLUS INTEREST to buy an even better car... that you will own outright... it only takes a small sacrifice for 5 years of driving a clunker to get to that 1st new car. Small price to pay if you ask me.

Next, your mortgage. So many young people get out there and want all the extravagances right out of school. Stop. You're young, single and childless, why waste your money... start saving now. Be frugal, stop eating out 3 times a day, budget tight and save everything you can. When it is time to buy your first house... buy small.

At the beginning of this year, we had ZERO savings... we had fallen prey to the same thing America as a whole had fallen for... spend, use all available credit, have nice everything. But we had lost our house last year due to medical bills that just didn't seem to stop coming. And I just decided it had to stop. At the end of this year, we will pay off my wife's car (mine has been paid off for quite some time). In 10 years, we will have enough in savings to buy a 2 bedroom condo and still have well over $200,000 in the bank. We are not wealthy... we are lower middle class income range. But we are off the spending cycle and on a SAVINGS cycle.

This is why I was told I was destroying America, but I disagree. I am saving America. America was destroyed by people spending beyond their means. It is time we buy what we can afford and start producing something in our country other than "financial derivatives" and "speculative earnings." This will take time. The Economist Magazine has an EXCEPTIONAL article which backs up my belief that the way out of this crisis is not by spending our way out; but by saving our way out.

We need to take control of our own futures and stop speculating about the future. Too many people want to get rich quick or "buy" like a rich person living in fancy houses, driving fancy cars that they cannot afford. Stop paying the "get rich quick" guy with interest bearing debt. Start paying yourself. Save. Only buy what you need and what you have the CASH for... the rest of the world will fight you because they want you to go back to buying everything on credit... it's why they produce goods...

American Consumers Struggle With Their Debts-The Economist